How important is volume?

[China Diapers]

I think it comes down to the instruments you are trading and your methodology. I don't think the Turtles factored in volume to their trading, I might be wrong but don't think any of the old trend following methods took volume into consideration. Please correct me if I am wrong.

 

[Fran8]

Darvas and Livermore used Trend Following systems altought the discretionary part is as important as the rules and volume was very important, for the turtles there was no human decisions everything was mechanical. I do agree with you that nowdays trend following systems do not use volume

 

[China Diapers]

OK maybe I think of trend following a bit differently. Was it Ed Seykota who said all trading was trend following?

 

[Fran8]

I think you are correct, he said that whichever technique you use all of them need trends to make profits, I think he reply that when he was ask if trend following was dead, he also does not use volume at all

 

[China Diapers]

Wow, you've really done your homework.

 

[Fran8]

The problem with pure mechanical trend following systems you need to havee big funds since they have big drawdowns

 

[Fran8]

I have study all or almost all the best traders and their strategies, that is one of the reasons that I started the thread about volume since all have a different opinion about it and I wanted to know what people think

 

[China Diapers]

I started taking notice of volume after I was messing around writing different screeners for stocks and wrote one that just returned stocks with a big increase in volume, and I noticed big moves in a stock were more often than not accompanied by increase in volume. I had heard this before of course, but didn't really act on it until I discovered it myself.

Before this discovery I probably would have taken the trade anyway (I am still paper trading), but the increase in volume is more of a confirmation.

Again I think it depends on your methodology and they markets you trade.

 

[wallstreetwarrior87]

I have study all or almost all the best traders and their strategies, that is one of the reasons that I started the thread about volume since all have a different opinion about it and I wanted to know what people think

Who in your opinion are the best traders? Why are they the best?

It is very unlikely you will ever be privy to the underlying components that go into the "best" traders strategies, if the information is obtained from books or on the web, it is likely to be missing very important parts or is out of date, due to the various changes in the markets over the many decades.

Going back to your original post, what are you wanting to ascertain from volume?

 

[Fran8]

Who in your opinion are the best traders? Why are they the best?

It is very unlikely you will ever be privy to the underlying components that go into the "best" traders strategies, if the information is obtained from books or on the web, it is likely to be missing very important parts or is out of date, due to the various changes in the markets over the many decades.

Going back to your original post, what are you wanting to ascertain from volume?

I agree with you that is impossible to get the full strategy of the best traders from the books, but you can take things from each of them and have a look see what works for you what does not etc. For example William O´Neill, Peter Lynch and Darvas go into depth explaining their strategy and Livermore does not explain the full strategy but gives you tips.

What Im asking in the thread is if people use volume since many stocks go up in volume but there are many that do not have any volume signs and still make big moves

 

[Fran8]

I started taking notice of volume after I was messing around writing different screeners for stocks and wrote one that just returned stocks with a big increase in volume, and I noticed big moves in a stock were more often than not accompanied by increase in volume. I had heard this before of course, but didn't really act on it until I discovered it myself.

Before this discovery I probably would have taken the trade anyway (I am still paper trading), but the increase in volume is more of a confirmation.

Again I think it depends on your methodology and they markets you trade.

how are you doing paper trading is it going well and what kind of strategy do you use. My strategy is very similar to William O´Neill

 

[Shanghai]

I personally rate volume as very important. I am a trend follower and look for pullbacks. However for the trend to continue the volume on pullbacks should be comparatively low. High volume on pullbacks to me means that the institutions are selling their holdings. I want to look for the opposite actions ie that volume is increasing during rallies. That means that the large holders are increasing their stake. Sustained moves cannot continue unless it has institutional support.

 

[China Diapers]

I was chopping and changing strategies for ages and getting nowhere, for the last few months I have been working on two in paralell.

1) Stock breakouts a la Stan Weinstein/Mcgee which has done really well but now starting to have loads of losses due to choppiness in the stock market. I am totally unprepared for this and not sure if I should sit it out and risk missing some good trades or just keep taking signals. I guess it will be a long time still before I am confident what to do in these situations.

2) long term trend following strategy on major FX pairs which has done horribly, I just missed out on the good trends last year, but hopefull there are some around the corner.

 

[Fran8]

I was chopping and changing strategies for ages and getting nowhere, for the last few months I have been working on two in paralell.

1) Stock breakouts a la Stan Weinstein/Mcgee which has done really well but now starting to have loads of losses due to choppiness in the stock market. I am totally unprepared for this and not sure if I should sit it out and risk missing some good trades or just keep taking signals. I guess it will be a long time still before I am confident what to do in these situations.

2) long term trend following strategy on major FX pairs which has done horribly, I just missed out on the good trends last year, but hopefull there are some around the corner.

Have you read "How to Make Money On Stocks" and "Charting The stock market The Wykoff method" they are very similar to Stan weinstein book but go into more detail.

I personally have made more money when I have follow volume but I did not understand it very well since most of the books that i have read say that is very important but do not explain anything about it like "How to make money on stocks"(still a very good book). but with the book recommended on this thread and "Charting The stock market The Wykoff method" things are getting a lot more clear

 

[China Diapers]

Yes I have heard of them, I think I have read a bit of How to Make Money In Stocks. Man I have read so many books, I don't think reading another book would teach me anything new that would improve my trading. Now it's just about sticking to the plan and improving the plan through trial and error.

 

[Fran8]

Jajajaja same situation

 

[China Diapers]

Good to know I'm not alone. Let's make a pact, if you find the Holy Grail you let me know what it is, I find it I will let you know what it is. Deal?

 

[Fran8]

well I do not know if we will ever find the holy grail but we are going into the right direction. But ok I will sell to you the holy grail if i find it jejejej

 

[China Diapers]

OK better than nothing.

 

[Splitlink]

Can you give more details why you do not like volume, I think that is very difficult to interpret but all the best traders in history like Livermore, Dreyfus, Darvas Wykoff etc used and considered one of the most important indicators. i know that you will say that there are as many succesful traders that do not use it and have been as succesful like Richard Dennis and the Turtles or basically trend following systems.

But since this is a thread about volume plesase explain why you do not like it

Whew! It's terrible not liking something on here, isn't it?

I prefer to work without it because it is another cross that traders have to carry, like horizontal lines, fibs, pivots that, in my opinion, make trading more of a source of debate and argument than is worth the time. A line through the maximum number of bars will give you a good idea of where most of the trading is done. Deviations around those points will tell you where to enter, providing you are correct in your direction.

Trading is not easy, I know, but volume does not make it easier, regardless of what many may think. People who study volume, most of whom don't, and never will, understand it will end up making as many mistakes as those who don't use it and it will cost them more time.

On this chart. Where do you need the volume?